Take-or-pay Contracts and Throughput Agreements
Take-or-pay contracts and throughput agreements are unconditional commitments to buy goods or services from a supplier in the future, generally from a new facility created by the supplier. From the supplier’s point of view, such contracts guarantee a certain level of sales which gives assurance that the facility will be viable and expedite the financing; from the purchaser’s point of view, it secures a medium or long term source of supply, probably at favourable prices. Sometimes the supplier is set up by a consortium of customers who wish to share a particular facility, such as a pipeline to service the needs of a number of oil companies. Under these contracts, the purchaser is obliged to pay a certain minimum amount even if, in the event, it does not take delivery of the goods or use the services it has contracted for.
KeywordsTransportation Assured Expense
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